Aljazira Cap highlights COVID-19 impact on Saudi companies

Many sectors have been severely affected by the COVID-19 pandemic, with the exception of some key services including telecom and retail, Aljazira Capital said in a recent report.

The brokerage firm expected sectors related to travel & tourism and entertainment to be the most adversely impacted, as services in these segments will be relaxed only after the pandemic subsides.

“The extent of the impact on other sectors would differ based on how long the lockdown lasts and the underlying factors driving sector growth” the report added.

Impact of COVID-19 on sectors according to Aljazira Cap
Segment	Impact of COVID-19	Notes
Banking	Negative	Loans growth is expected to be limited; however, re-pricing will have an impact on margins. Also, decrease in repo and reverse repo rate would lower the net interest margin (NIMs). Non-performing assets (NPAs) are expected to increase due to COVID-19 on corporates operations, hence resulting in higher impairment expenses.
Retail	Negative	A gradual recovery can be expected towards the end of 2020 and the segment would benefit from easing of curfew in the short-term.
Petchem	Negative	This is mainly due to lower demand, prices, and margins. The segment is expected to be affected by lower oil prices as well as COVID-19 crisis. Recovery may take several quarters.
Cement	Negative	The sector is likely to face the most pressure in Q2 2020 due to halt in construction activity during the 24-hour curfew. It is also expected that government spending on mega projects will be limited.
Healthcare	Slightly Negative	This is mainly due to a decline in day visits.
REITs	Slightly Negative	The impact would vary depending on the nature of operations. The firms which have exposure to the hospitality section in Makkah and Madinah would be the most impacted due to the lockdown. Similarly, REITs owning malls would also witness a negative impact.
Telecom	Slightly Positive	The suspension of Umrah and Hajj and travel bans are expected to hit the sale of temporary SIM cards. On the other side, data demand is expected to be higher during the curfew, as most people are working from home.
Miscellaneous	Negative	--

However, the impact of lockdown is forecast to be reflected on the financials of the companies, as some of them are expected to report net losses for the fiscal year 2020.

TASI earnings are expected to decline between 15% and 20%, based on the price-to-earnings (P/E) ratio by 18 times and the fair value of the market between 5,800-6,000 points.

This shows that the market seems expensive at fair value based on expected earnings, the report stated.

In addition, some businesses, including those light on cash, will struggle to survive or even file for bankruptcy, while others may find it difficult to honor their financial commitments due to a severe lack of funds.

“This could result in more NPAs provisions for the majority of the banks, resulting in higher provisioning,” Aljazira Cap said.

On the other hand, consumption-based and defensive sectors such as food and beverages, telecom, and healthcare present investment opportunities where returns can be sustainable in the long-term.

Aljazira Capital - COVID-19 impact on Saudi companies 07/05/2020

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